8 V.S.A. - 6002(b)(2) states "No captive insurance company shall do any insurance business in this state unless: (2) its board of directors, or committee of managers or, in the case of a reciprocal insurer, its subscribers' advisory committee, holds at least one meeting each year in this state;"

The requirement was part of the original legislation passed in 1981 for economic reasons. Bringing people to Vermont was a selling point for creating captive insurance in Vermont. However, the meeting requirement has since come to mean much more for the captive industry itself.

We addressed this issue in a memo ten years ago (Memo #94/1) after supporting a change to the corporate code allowing corporations to reduce their quorum to as low as one-third. We supported the change, primarily because it reduces the hardship on group captives that tend to have large boards of directors in order to provide broad representation among members. This change could also allow a pure captive to establish a board of three persons, one being the required Vermont resident. A meeting involving only the Vermont resident director would not evidence satisfactory board supervision of the company. Memo #94/1 allows a meeting at which a quorum is present in Vermont to satisfy the statute. However, we require that a representative of the company who is involved in the operation of the captive attend the Vermont meeting in person. Conference telephone participation is fine so long as a quorum and the parent's representative is physically present in Vermont.

Vermont's flexible and open regulatory approach depends on periodic communication between the regulators and the captive owners. Bringing the representative of the company to Vermont enhances this communication.

Visiting Vermont at least annually also provides more time with the Vermont manager and other service providers than would be allowed by conference call using a set agenda for the board meeting. This extra time allows the manager to better update the captive representative on current events within the industry and answer questions personally. This provides extra value to the captive.

We do understand that the annual meeting requirement can be a hardship and have made many allowances over the years: after 9/11 when many companies did not allow travel and employees did not wish to travel, and for last minute health or weather problems that made travel difficult.

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Credit for reinsurance allows an insurer to reduce or offset its loss reserves by the amount of risk ceded to a reinsurer.

8 VSA §6011(b) allows captive insurers to take credit for risks ceded to certain reinsurers.  This section states:

"Any captive insurance company may take credit for the reinsurance of risks or portion of risks ceded to reinsurers complying with the provisions of subsections 3634(a) through (f) of this title.  Prior approval of the commissioner shall be required for ceding or taking credit for the reinsurance of risks or portions of risks ceded to reinsurers not complying with subsections 3634(a) through (f) of this title, except for business written by an alien captive insurance company outside of the United States."

The section references Vermont's traditional company statute 8 VSA §3634(a)-(f) which is similar to the NAIC model credit for reinsurance act adopted by most states.  In simple terms, it allows credit for risks ceded to the following:

• Insurers licensed in Vermont
• Reinsurers licensed in Vermont
• Insurers domiciled and licensed in a state which employs substantially similar standards regarding credit for reinsurance
• Insurers which maintain a trust fund in a qualified US financial institution, approved by the Commissioner, for the payment of the valid claims of its US policyholders and ceding insurers.

Vermont also included a provision at the end of §6011(b) to authorize credit for reinsurance, with prior approval of the Commissioner, for risks ceded to insurers not complying with the above.  This allows Vermont captives to take credit for risks ceded to alien insurers not licensed in the US.  In approving the credit, we consider the insurers financial status, its domicile and the portion of risk ceded.  We have had many captive insurers take advantage of this provision.

The very last lines of the section "except for business written by an alien captive insurance company outside of the United States" was included in the statute when we adopted captive branch statute in 1999.  This addition clarifies that an alien captive insurance company, with a branch in Vermont may reinsure its non-branch business without Vermont's prior approval.

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A captive insurance company is a closely held insurance company whose insurance business is primarily supplied by and controlled by owners, and in which the original insureds are the principal beneficiaries. The insureds have direct involvement and influence over the company's major operations, including underwriting, claims and management policy and investments. There are currently 4,000 captives licensed worldwide that service their parents' risk financing needs. In Vermont, that figure is 460.

Vermont's captive owners represent a wide range of industries including multi-national corporations, associations, banks, municipalities, transportation and airline companies, power producers, public housing authorities, higher education institutions, telecommunications suppliers, shipping companies, insurance companies and manufacturers, among others.

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The majority of captives are "pure", meaning they are 100% owned by a single entity. However, there are numerous "group" captives including: industrial insured, association-sponsored, and "risk retention groups", which are companies licensed under federal risk retention legislation and operating as captives. In Vermont, CICs are supported by a mature infrastructure comprised of seventeen management companies and professional service industries including banking, legal, accounting and actuarial firms that cater to the captive client.

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Commercial insurance companies sell insurance to the general public and are licensed in all states in which they do business. By contrast, CICs directly insure only their owners, who are sophisticated insureds, with the ability to manage and retain their own risk. Consequently, the degree of regulatory oversight required for captives is less than that which is required for commercial insurers. The captive is licensed in only one state, and operates under the captive insurance law of that domicile.

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By statute, a captive is examined every 3-5 years. The Captive Insurance Division examines all risk retention groups (RRG) every 3 years. All pure captives are examined every 4-5 years. Other group programs are examined every 4 years.

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Pure captives typically take one week. A large pure program may take two weeks. RRGs typically take three weeks and for other group programs, two weeks is expected. The majority of examinations are performed at the Vermont captive manager's offices. The exception is for group programs when claims and underwriting testing is typically performed out of state.

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Yes. Risk Retention Groups must request and receive a Company Code from the NAIC. You can find the request form at naic.org. A certified copy of your license is required which we can issue as requested.

Risk Retention Groups must also file annual and quarterly statements with the NAIC and are subject to accreditation standards. RRG's must also file quarterly statements with the states they are registered and also with the domiciliary state.

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Other forms of captives are not required to have a Company Code but may find it needed. Your fronting carrier will ask for your company code to complete its Annual Statement filings. Other states may come across the captive name and ask the NAIC who you are. Having a company code lets the NAIC know you are a Vermont captive and are not required to file with the NAIC. This saves time and trouble.

Vermont periodically updates its captive listings with the NAIC. The NAIC assigns a company code, notes that it is a captive, and also notes that the captive is not required to file with the NAIC.

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1) Annual Report, due annually by 3/1:

• NAIC blank for Life/Health Companies, including pages E01-E25 (Investment Schedules)
• RBC Report
• Other Reports as ordered by the Commissioner

2) Annual Report Supplements, due annually by 4/1:

• Management Discussion & Analysis
• Investments Risk Interrogatories
• Other supporting schedules on the Life/Health checklist applicable to the business

3) Actuarial Opinion, due annually by 6/30

4) Audited Statutory Statements, due annually by 6/30 including:

• Report of Evaluation of Internal Controls
• Accountant's Letter
• Certification of Review of Audit Workpapers

5) Vermont Premium Tax Return, due annually by 2/28

6) License Renewal Fee of $300, due annually by 4/1

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No, Special Purpose Financial Captives will not be subject to NAIC filing requirements. Only the applicable forms will be used to file with Vermont as the State of domicile.

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It is required that the Company submit financial projections with their application covering a five-year period and every five-year period thereafter. It is also expected that the Company would submit revised five-year projections when significant changes are made to the approved plan of operations of the Company. The projections should include a balance sheet, statement of income, and a list of financial assumptions used in the creation of the projections.

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The Captive's stock certificate should be reissued in the new Parent's name. In addition, it is recommended that the Company obtain a new Certificate of Incorporation and revise their By-laws and Articles (if affected) as well as letter's of credit, policies, and reinsurance agreements.

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No, Vermont requires that the Board hold its first annual meeting within 12 months of being licensed, and then annually thereafter.

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Yes, assumptions are an important part of a company's proformas financials and should be filed each time they are prepared.

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It is not a difficult process, but first we would like to have a conversation, either in person or via conference call.   We can discuss your captive's operations, and see if it would be a good fit for Vermont, and vice-versa.  We want to make sure that it is a good fit and that both of our expectations are clearly defined.  We want the decision to be positive for all parties.  We would want to see an outline of your current business plan and the latest audited financial statements and actuarial analysis so we can do a quick preview to see if your program would work here and to see if any adjustments would be needed to the program or the capital structure.   Any information you provide would be confidential by statute.

While moving your captive from one domicile to another is not complicated, it does help to have the assistance of local counsel to help with drafting the necessary board & shareholder resolutions and to see the process through the Secretary of State's office.  In many cases you can keep your same captive manager, as most of the leading captive managers have offices in multiple domiciles.  If that is not the case, then we would be happy to provide you our list of approved captive managers.

There are at least three ways to move your captive from one domicile to another: redomesticate the company, which is essentially picking up the captive and moving it; creating a captive in the new domicile and transferring the business via a loss portfolio transfer; or creating a captive in the new domicile and merging the old into the new.

As far as what is needed for paperwork, some of the basics are:
 - a letter of intent to both domiciles requesting approval of the plan;
 - board and shareholder resolutions approving the change;
 - an application for admission into the new domicile;
 - tax clearance from the old domicile;
 - the old domicile may require evidence of acceptance from the new.

There may be some minor variations in needed paperwork from the old domicile and some items will differ based on the exact method chosen to move the captive (i.e. a merger will require separate merger approvals), but the gist is there.

The time frame is usually about the same as for any new captive, about a month.

Redomestication to Vermont is a trend we have seen for many years and we are happy to help you navigate it.  Just give us a call.

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In Vermont we license captives based on the parent company insurance needs and risk management purposes. The captive is first and foremost an insurance company, therefore it must charge a determinable premium for assuming a real risk of the parent. We consider taxes only to the extent that they impact surplus (i.e. the tax expense and related tax assets or liabilities).

If a company is relying on a particular tax scenario to make the captive economically viable, that's a concern that must be addressed. In Vermont, we don’t track the number of captives making the 831(b) election, but we do track our captives based on premium written. Last year more than 25% of Vermont’s captives wrote $1 million or less in gross written premium, and there's a fair chance that some would qualify for a variety of tax elections. Vermont is a very welcoming domicile for small captives, regardless of their tax election!

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